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Tarnished gold prices improve

Posted: Thursday, March 29, 2001

By TOM GARDNERAssociated Press Writer

RENO, Nev. -- The depressed gold market is showing renewed luster these days, and not just due to burned stock market investors looking for a safe haven. Analysts say much of the spurt is due to dealers who have been selling gold they didn't own -- and who now are scrambling to cover their speculation.

The practice among the dealers is called covering short positions. Those short positions are due to speculation during the stock market boom.

''Over the past several years, we've seen people borrowing gold, selling it, putting the money in the stock market. As long as the stock market goes up and gold goes down, you win both ways,'' economist John Dobra said.

''You're going to buy gold at some time in the future when the price is lower, deliver it against what you've sold -- and meanwhile you're making the money in the stock market.

''Those times seem to be ending,'' he added. ''The (stock) market is not doing too well.''

Dobra, an associate professor of economics at the University of Nevada, Reno and director of the school's Natural Resource Industry Institute, stressed that the gain of a few dollars in gold prices in less than a week fell far short of a breakthrough in the depressed precious metals market.

''We have a long way to come back, but I'm cautiously optimistic,'' he said.

Gold closed at $272.30 an ounce March 19 on the New York Commodity Exchange, its highest price of the year. The metal has languished in the $260s for several months and fell to $256 last month. It was trading at $261.55 as recently as Tuesday.

It lost $4.80 to $267.50 an ounce on Tuesday.

''It just underscores the volatility of the whole situation,'' Nevada Mining Association President Russell Fields said.

Dobra and Fields agreed that gold would have to climb above $300 an ounce and remain there for the improvement to have much effect on Nevada's mining industry. It has not reached that level since February of last year.

Nevada is the No. 3 gold producer in the world, behind South Africa and Australia. Its 8.26 million ounces of gold mined in 1999 represented 75 percent of the United States' output.

And adding to the uncertainty was Wednesday's auction of 25 metric tons of gold by the Bank of England.

Gold, once the investment of choice for those seeking security, began its long decline May 7, 1999, when the bank announced plans to sell 415 tons from its reserve of 715 metric tons. The metal fell to $282.40 an ounce that day, $12 below its price two months earlier, and it has been falling since then. Several western gold mines have closed as gold prices dropped below the cost of production.

Gold prices eroded further on Wednesday after the Bank of England auction fetched $266 an ounce. It was expected to virtually complete this year's shift of the bank's portfolio from bullion to dollars, euros and yen.